The Franklin County Court of Common Pleas, in a decision Tuesday, rejected a challenge by the Buckeye Institute claiming that Ohio's temporary law, H.B. 197, deeming remote work performed during the pandemic to occur at an employee's principal place of business, violated the state and U.S. Constitutions.
Judge Carl Aveni sided with Columbus Auditor Megan Kilgore and state Attorney General Dave Yost to dismiss the case, finding that the General Assembly did not infringe upon due process rights when regulating taxes within the state. Judge Aveni noted that Ohio courts have interpreted the state constitution to authorize the Legislature's regulation of municipal taxation, including coordinating limitations between municipalities.
"The court finds that the General Assembly enjoys the authority to establish municipal income allocation rules among Ohio taxing authorities in order to efficiently and uniformly coordinate intrastate taxation of Ohio residents," he said.
Institute President and CEO Robert Alt said in a press release Wednesday that the institute had already appealed the decision, adding that "the Ohio Supreme Court has been perfectly clear in binding decisions stating that cities lack the authority to tax residents who neither work nor live there."
H.B. 197, enacted in March, was a sweeping bill passed in response to the spread of the coronavirus that causes the respiratory illness COVID-19. The law's municipal income tax sourcing provision will be in effect until 30 days after Ohio lifts the state of emergency that was issued in response to the pandemic.
The institute, which is based in Columbus, and its employees challenged the law in June after Kilgore didn't respond to letters from the employees seeking refunds of any withholding amounts that Columbus deemed to have been sourced to the city while they worked remotely during the pandemic.
In a brief filed in September, Kilgore told the court that the due process clause didn't prohibit Ohio from crafting a law that regulated its intrastate tax policy.
The institute said that state and local laws, as well as precedent, have established restrictions on local income taxes. Municipalities may tax only income earned by residents or income earned by nonresidents who work within their borders, the institute said.
Judge Aveni determined that the institute misapplied holdings from the state Supreme Court's 2015 decision in Hillenmeyer v. Cleveland Board of Review and the 2020 decision in Willacy v. Cleveland Board of Income Tax Review , since both decisions involved interstate taxation.
"Neither Hillenmeyer nor Willacy address the Ohio General Assembly's longstanding power to tax Ohio residents wholly within Ohio's borders, or to set appropriate coordinating limitations between Ohio municipalities for an efficient, organized and coordinated intrastate taxing schema," he said.
The institute also failed to show that H.B. 197 impermissibly expanded municipal taxing powers, Judge Aveni said, since the law "is an express limitation on municipal latitude in taxation, providing uniform rules regulating the circumstances in which municipalities can and cannot tax."
The suit is only one of a series of similar challenges to the law. In February, the institute also took action against Cincinnati, followed in March by a suit against the cities of Oregon and Toledo, and finally a complaint lodged against Cleveland in April.
A legislative proposal to undo H.B. 197 has faced pushback from local governments, who said the measure would lead to budget crunches by allowing retroactive refund claims.
Jay Carson, a senior litigator at the institute, told Law360 in an email that the court's ruling is not controlling authority in other appellate districts where other cases are pending. He added that the case would likely be reviewed by the state Supreme Court "because it involves fundamental questions of due process and legislative authority, as well as some issues specific to Ohio's Constitution, [and] will have to be resolved by the Ohio Supreme Court."
In an email to Law360, Diane Menashe, counsel for Kilgore, said that the remote tax supports all essential services for the city of Columbus.
Yost's office did not immediately respond to requests for comment.
The Buckeye Institute and its employees are represented by Jay Carson of Wegman Hessler and by the institute's own Robert Alt.
Columbus Auditor Megan Kilgore is represented by Diane Menashe, Daniel Anderson and Mark J. Richards of Ice Miller LLP.
Attorney General Dave Yost is represented by Julie Pfeiffer, Allison Daniel and Zachary Holscher of the Ohio Attorney General's Office.
The case is the Buckeye Institute et al. v. Megan Kilgore, et al., case number 20CV-004301, in the Franklin County Court of Common Pleas.
--Additional reporting by Paul Williams and Daniel Tay. Editing by Neil Cohen.
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